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Abstract

In recent years, the Islamic finance
industry has attracted the attention of policy makers and
international donors as a possible channel through which to
expand financial inclusion, particularly among Muslim
adults. Yet cross-country, demand-side data on actual usage
and preference gaps in financial services between Muslims
and non-Muslims have been scarce. This paper uses novel data
to explore the use of and demand for formal financial
services among self-identified Muslim adults. In a sample of
more than 65,000 adults from 64 economies (excluding
countries where less than 1 percent or more than 99 percent
of the sample self-identified as Muslim), the analysis finds
that Muslims are significantly less likely than non-Muslims
to own a formal account or save at a formal financial
institution after controlling for other individual- and
country-level characteristics. But the analysis finds no
evidence that Muslims are less likely than non-Muslims to
report formal or informal borrowing. Finally, in an extended
survey of adults in five North African and Middle Eastern
countries with relatively nascent Islamic finance
industries, the study finds little use of Sharia-compliant
banking products, although it does find evidence of a
hypothetical preference for Sharia-compliant products among
a plurality of respondents despite higher costs.